When Insurers Take Their Toys and Go Home

byEmilyonMay 10, 2008

For the past few years there has been work in cities and states across the country to improve our citizens’ access to health care. From San Francisco to Vermont, 39 states and a number of cities are in the process of creating legislation that would help address their numbers of uninsured.

Washington, D.C. is one of these. A look at the trouble our nation’s capital is facing on this issue may shed a light on why the words “health care reform” are often greeted with less than a smile.

On April 1, D.C. City Councilmember David Catania and 8 other Councilmembers introduced a mandate plan to provide health insurance to approximately 45,000 uninsured District residents. The “Healthy DC Act of 2008” was designed to cover uninsured individuals who make more than $21,000 but less than 200% of the poverty level and cannot afford private insurance. (Those who make up to $21,000 can receive Medicaid, Medicare or the D.C. Healthcare Alliance public program.) City council intended Healthy D.C. to make health insurance available at monthly premiums of between $20 and $100 per month by July 2009.

The problem is that the private insurer with which the city has been working for 6 months to set up this program is now threatening to pull out, taking all of its health care providers with it. Why? Apparently nonprofit CareFirst Blue Cross Blue Shield, the region’s largest private insurance provider, is no longer confident the city can come up with the necessary funds.

The original proposed funding sources for estimated $50 million price tag:

CareFirst – $5 million

City – $21 million

Other revenues – $24 million

Double the cigarette tax to $2

2% tax on HMOs

Increase commercial health-care premium tax by 0.3%

$250 fines on uninsured tax filers who met the income requirements for the new program but self-declared as uninsured

Health care advocates had been challenging 2 aspects of the plan:

the proposal to mandate low-income individuals by penalizing them if they didn’t purchase the new public coverage;

the city’s selection of CareFirst in a no-bid process.

The advocates won on both accounts. Council abandoned the plan of fines for failure to enroll in favor of proactively “reaching out” to get the uninsured covered. As a consequence, CareFirst is seemingly less interested in providing their insurance services and doctor networks lest the city’s more compassionate approach to the uninsured means they get stiffed on the bill.

Ironically, perhaps the D.C. City Council had picked nonprofit CareFirst for the size of their network and their reputed ability to keep costs down. This, however, was the very thing for which they were under investigation in late 2007: structuring contracts with providers to gain an unfair competitive advantage in the insurance market. These contracts allowed the insurer the lowest reimbursement rates these providers negotiated with any CareFirst competitor.

CareFirst argued that these “most-favored-nation” clauses help keep costs down. But for whom? One thing we know for sure about our health care system is that cost-cutting is too often cost-shifting:

The less an insurer reimburses doctors, the more those doctors pass those costs on to patients.

The more power one insurer has in a market, the less able smaller insurers are able to compete on lower prices and, maybe, better service. Which may be why 11 states have passed legislation limiting or banning most-favored-nation policies.

And if the name CareFirst is ringing a bell, perhaps you’re thinking of our post earlier this week. Maryland’s insurance commissioner is investigating the $17.65 million severance and retirement package for CareFirst’s former CEO, who stepped down in November 2006 after his contract wasn’t renewed.

Nonprofit CareFirst has nearly 3 million members in Maryland, the District of Columbia and Northern Virginia. In 2006, CareFirst took in $5.5 billion in revenues, paid out $4.5 billion on members medical expenses, and made a profit of $164.2 million compared with $118.5 the year prior .